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Alter-Ego and the Evergreen Rule B Attachment–News Flash

Attempts by plaintiffs to obtain security from third parties for the debts of related companies, by trying to “pierce the corporate veil,” keep on coming. While the U.S. has a fairly wide net to cast for maritime liens, including liens for “necessaries” under U.S. maritime law not available in most other nations, it is still not as effective as sister-ship or “associated ship” arrests as in South African waters off the tip of Africa. Hence the creative allegations by lawyers to convince U.S. federal courts that the target entity from whom security has been sought under a Rule B attachment or Rule C arrest is simply the “alter ego” of the defaulting party.

Of course, it is easier to allege than to actually prove alter ego. This was borne out by the well-reasoned 4th Circuit decision in Vitol v. Primerose Shipping Company Ltd., (Feb 2013), holding that plaintiff had not proved the allegations in its complaint. In that case, plaintiff tried a few times to add “facts” to support its alter ego theory; nevertheless, despite acknowledging that the cast of Greek characters “maintained a close business relationship that sometimes resulted in the disregard of formality”), the court vacated the attachment.

More recently, in Commerzbank v. m/v Utopie (April 2014), we saw some skilled wordsmithing or creative writing in the plaintiff’s complaint, claiming the application of governing German law, whereby the (bad) bank:

knew the owners were in “dire financial straits,” but failed to foreclose the mortgage

“effectively intervened” in the management of the charterer, by “aiding and abetting” in the insolvent trading of the owners

allowed the vessel to sail to a suitable and attractive location to foreclose the mortgage and file suit

by foreclosure, forced termination of the charter party, thereby causing damages to charterers

should have waited until after the charter ended, before foreclosing the mortgage

Plaintiffs claimed that these bad acts supported a tort cause of action under the German Civil Code, basically for “interference with contractual relations.” At the time the attachment order was issued, they were not determined by the court to be true, only that they were prima facie valid to support the issuance of an attachment order, a low threshold. Thereafter, the court ordered the parties to brief whether German law was the applicable “choice of law;” and if the court so finds, there will have to be further briefing on whether the facts support such a cause of action under German law.

The case is ongoing at time of printing. However, charterers have a long road to hoe if they are to prevail on this novel German tort based argument. Also, there is no reported case in the U.S. where a court has ruled that a bank interfered with a third party charter contract (and is thereby liable for resulting damages) by foreclosing a ship mortgage. Watch this space!